The Securities and Exchange Commission has recently proposed certain amendments to Rule 144 under the Securities Act of 1933 (the “Securities Act”) (the “Proposed Amendments”).
Among other things, the Proposed Amendments will eliminate the “tacking” of holding period for “marketable-adjustable securities.” Rule 144 under the Securities Act sets forth a safe harbor allowing for public resales of securities without registration under the Securities Act if certain objective criteria are met. One of those criteria is a required holding period during which the selling security holder must have held the securities prior to resale. In order to satisfy the applicable holding period requirement under Rule 144, a holder is permitted in certain circumstances to tack on either the holding period of prior owners of the same securities or the holder’s holding period for other securities owned by it.
Pursuant to the Proposed Amendments, the holding period for “marketable-adjustable securities” of unlisted companies would not begin until such “marketable-adjustable securities” are acquired upon the conversion or exchange. In other words, a purchaser would need to hold the underlying securities for the applicable Rule 144 holding period before reselling them under Rule 144.
Note, however, that the Proposed Amendment “would not affect the use of Rule 144 for most convertible or variable-rate securities transactions.” Rather, it would apply only to “market-adjustable securities” transactions in which (1) the newly acquired securities were acquired from an issuer that, at the time of the conversion or exchange, does not have a class of securities listed, or approved for listing, on a national securities exchange; and (2) the convertible or exchangeable security contains terms, such as conversion rate or price adjustments, that offset, in whole or in part, declines in the market value of the underlying securities occurring prior to conversion or exchange, other than terms that adjust for stock splits, dividends, other issuer-initiated changes in its capitalization or other anti-dilution adjustments.
The Proposed Amendments would also
mandate electronic filing of Form 144 related to the resale of securities issued by companies subject to Exchange Act reporting;
eliminate the Form 144 filing requirement related to the resale of securities issued by companies that are not subject to Exchange Act reporting;
extend the filing deadline for all Forms 144 to coincide with the Form 4 deadline (i.e., within two business days); and
amend Forms 4 and 5 to add an optional check box where filers may indicate that a reported transaction is being made pursuant to a Rule 10b5-1 plan.
The Proposed Amendments are currently going through a 60-day public comment period.